Fresh wave of selling engulfs oil and metals markets

A renewed sell-off in oil and metals has shaken investors as fears grow that falling demand for commodities is signalling a sharper slowdown in China’s resource-hungry economy.

Copper, considered a barometer for global economic growth because of its wide range of industrial uses, fell to a six-year low below $5,000 a tonne on Thursday.

Oil, which has tanked almost 20 per cent since a short-lived rally in October, dropped to under $45 a barrel on Thursday, less than half the level it traded at for much of this decade.

The Bloomberg Commodity Index, a broad basket of 22 commodity futures widely followed by institutional investors, has fallen to its lowest level since the financial crisis.

Commodity prices have become a barometer for the health of China’s economy, whose rapid industrialisation over the past 10 years has been the engine of global growth.

While markets already endured a commodity sell-off in August, traders and analysts say the drop is more worrying this time as it appears to be driven by concerns about demand rather than a glut of supply.

“Whether it was power cable production [in China] or air conditioner data. . . activity in October continued to show deep contraction,” said Nicholas Snowdon, analyst at Standard Chartered.

The slowdown is particularly concerning as many analysts and investors had expected an easing in Chinese credit conditions to stoke a modest increase in consumption in the fourth quarter.

Goldman Sachs said this week that recent data pointed to shrinking demand in China’s “old economy” as Beijing tries to manage a transition to more consumer-led growth.

By some measures commodity prices are back where they were before China started on its path to urbanisation more than a decade ago.

Other leading commodity indices are back at levels last seen in 2001, while shares in Anglo American fell to their lowest since the company’s UK listing in 1999 on Thursday. A stronger US dollar has also weighed on raw material prices.

“There are signs that oil demand growth is slowing down significantly relative to earlier this year,” said Pierre Andurand, one of the top performing energy hedge fund managers last year. “World GDP growth will keep on being revised down.”

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